South African rand at risk from weak economy, China concerns - CNBC Africa

South African rand at risk from weak economy, China concerns

Financial

by Reuters 0

South African rand at risk from weak economy, China concerns. PHOTO: Money 101

South Africa's rand steadied against the dollar on Wednesday after touching fresh 14-year lows the previous day, but traders expected weak local economic fundamentals and concerns about China's growth to keep the currency under pressure.

At 0645 GMT the local currency was 0.1 percent firmer at 12.8895 per dollar compared with Tuesday's close.

The unit had tumbled to 12.9705 on Tuesday, a level last reached in Dec. 2001 amid an emerging market sell-off partly prompted by investors' expectations that U.S. interest rates could rise in September.

Investors are currently seeing little appeal in South African assets as the economy grapples with chronic electricity shortages and the threat of wage strikes in the gold mining sector.

The rand has already given up more than 11 percent of its value against the dollar so far this year, reflecting its vulnerability to a negative current account balance which has traditionally be covered by portfolio inflows.

Although domestic inflation and retail sales data later on Wednesday would offer clues on whether the central bank could raise interest rates further this year, traders and analysts expected the rand to take direction mainly from global markets.

"The 10 percent drop in the Chinese equity market over the past two days, reflecting growing concern over the economy, has started to spill into global markets," Rand Merchant Bank currency analyst John Cairns said.

"Rising risk aversion has hit commodities, with the coal price notably falling to a 12-year low and risks spilling into high-yield currencies such as the rand."

South African government bonds were on a firmer footing in early trade, and the yield for the 2026 benchmark slipped 1.5 basis points to 8.265 percent.

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